Providing custom mortgage credit reports, related services & technology solutions for over 75 years.



What effect does the seller's market have on consumers?

January 18, 2019

For years now, the housing market has been one that heavily favors current homeowners. Home prices have been rising - both steadily and quickly - for years, and only recently has the rate of those increases started to slow. At the same time, mortgage rates have been hovering at or near historical lows for years, giving current owners plenty of opportunity to refinance their mortgages and lock in some of the best deals in the history of the housing market.

It's small wonder, then, that owners wield significant control within the market specifically because they are still loath to sell, even after years of home price growth. After all, if they were to sell now, they would enter a market in which homes for sale are relatively scarce, and moreover millions would have to give up their stellar mortgage rates.

"Experts see more difficulty for buyers in 2019."

That trend isn't likely to change much in 2019, either, as most industry experts - including Chief Economist Danielle Hale - see more difficulty for buyers in terms of rising home prices, higher mortgage rates and even climbing rents, according to MarketWatch. Even if growth rates are slowing down these days, they're still on an upward trajectory, which will make most of this year's shopping season one that very much favors current homeowners.

A look at the undercurrent
This all comes against a backdrop in which the economy as a whole continues to perform better, the report said. It's doing so well, in fact, that the Federal Reserve Board has made the decision to increase underlying interest rates - the rate at which banks borrow money, which are often passed along to consumers in the form of higher credit costs - by 25 basis points at least twice in 2019. That comes even after the Fed increased rates by the same level three times since September, and indicates that mortgage rates are only likely to follow suit and keep climbing.

"Shoppers feel they've been priced out of the market."

That, in turn, could serve to further discourage owners from putting their homes on the market, the report said. After all, if an owner locked in a mortgage rate of, say, 3.5 percent a few years ago, the idea that rates could average 5 percent for much of the year, and potentially end 2019 closer to 5.5 percent, may be a bit of a turnoff. The good news is that inventories have been rising, but some experts believe that's more of a result of shoppers feeling they've been priced out of the market by higher costs and, in particular, recent rate hikes.

"What's driving the slowdown in price appreciation and the rise in inventory is not so much that inventory is being created, but that demand is decreasing," Daren Blomquist, senior vice president at real-estate data firm ATTOM Data Solutions, told the site. "This is an extremely mortgage-rate sensitive housing market."

As a consequence, and because inventory has been historically tight for some time, even the larger number of houses spending a longer period of time on the market won't tip the scales back toward buyers, the ATTOM report said.

How does it impact first-time buyers?
In a survey of nearly 1,000 people from, some of the most common mistakes first-time buyers - who will likely make up a massive percentage of shoppers this year - said they realized they'd made after purchasing a home included not saving enough money for the down payment. This was most common among millennials, of which 15 percent said that issue was among their top five regrets in navigating a home sale. Only 12 percent of Gen-Xers and 11 percent of boomers felt the same way when they made their first home purchases.

However, 14 percent of both millennials and boomers said that they regretted underestimating how much prep work goes into buying a home, the survey found. Nearly as many Gen-Xers - 12 percent - felt the same way. Interestingly, the single biggest regret shared by all generations was that they realized the property they purchased was at least a bit too small for their needs. This, too, indicates that for many shoppers, there is a necessity to save even more money to buy a bigger, right-sized home.

Smaller percentages - 6 percent of millennials and boomers, but 9 percent of Gen-Xers - said they realized after the fact that they didn't do enough research, polling showed.

"44% recent homebuyers paid more than they wanted to."

Shoppers fully aware of the issue
While today's would-be buyers are largely aware of the challenges they are likely to face, in terms of both higher costs and increased competition, the fact remains that they are eager to get into the market if they think they can afford it, according to the latest State of the California Consumer Survey from the California Association of Realtors. Indeed, 44 percent of respondents who recently made a purchase said they paid more than they wanted to, and almost a third noted that they bought a smaller home than they would have preferred.

And because of the various challenges in buying a home, 36 percent said they bought a home farther from work or school than they wanted, and 30 percent thought the schools where they purchased weren't of the quality they were aiming for, the survey found.

"Well-qualified homebuyers understand that buying a home can be challenging in a competitive housing market environment and they may not be able to buy the ideal home they want," said 2019 CAR President Jared Martin. "Instead of finding a home that's a perfect fit, they are finding a home that's a good enough fit."

And these decisions came even after buyers in the state said they saved money for an average of about five years, the report said. In all, eventual buyers said they usually spent about eight weeks searching for a home, though close to a third said the process took at least three months. In general, when markets were more popular, it understandably took shoppers longer periods to make a deal. The median buyer made offers on three homes before their bids were accepted, but a quarter said they had to bid at least 10 times.

Shifting expectations?
Over the course of 2018, the average mortgage rate in the U.S. rose by 70 basis points, the most of any year since 2013. Experts are predicting similar increases this year, according to analysis from Zillow. There is some expectation that rates could climb as high as 5.5 percent - more or less in line with the pre-recession norm but nonetheless bound to cause some sticker shock for modern shoppers - and if that were to happen, it would push more than 5 percent of homes currently on the market into unaffordable territory for the typical buyer.

And again, because higher rates may also discourage owners from putting their homes on the market, that could put a dent in the inventory increases seen over much of the past few months, while also hurting people's ability to enter the market as buyers, the report said. That, in turn, may lead to the housing market slowing down, which wouldn't be good for sellers who have long enjoyed a lot of interest from shoppers in an improving economy.

"Buyers can maximize their advantages."

What can people do?
Given it's still a seller's market - even a less heated one - there may still be plenty of steps would-be buyers can take to maximize their advantages, according to the Longview News-Journal. Perhaps chief among them is working with an experienced real estate agent and getting preapproved for a mortgage. The sage counsel of an experienced professional is often important for first-timers when they want to navigate the sales process with aplomb, identify the best houses in their areas that fit their various needs (size, price, proximity to school or work, etc.) and get the best possible deal on it.

Shopping with mortgage preapproval is likewise valuable for buyers because it both gives them a reasonable limit for their homebuying efforts, which they cannot exceed without going back to their lender . It also serves as an enticement to sellers, the report said. After all, a buyer with preapproval can get through the sales process much more quickly than someone who does not have it, with no risk that their mortgage application will be rejected by a lender, derailing the sale altogether. Generally speaking, the more speed and flexibility buyers can offer sellers, the more likely they will be to have their bids accepted.

In fact, the more people who want to buy a home can do to make sure they are fully prepared to make a purchase - through research, diligent saving and credit improvement, consultation with a real estate professional, etc. - the better off they will be in this seller's market. After all, the fewer surprises they face, the less likely they will be to have regrets or lingering concerns about the process.




If you liked this article, consider signing up for our weekly Buzz recap email! Sent every Friday morning, it's a quick way to catch up on all the industry news and happenings at Avantus. Click here to sign up!